Technical Break In E-minis Lends Support To Core FI Overnight

The late NY month-/quarter-end bid faded a little in early Asia-Pac trade, with a lack of tier 1 headline flow evident as e-minis initially nudged away from their late NY lows. The space then turned bid as initial key support in e-mini S&P 500 futures was breached, weighing on broader risk appetite. T-Notes last +0-12+ at 132-00, through Thursday's late high. The early bear steepening witnessed on the cash Tsy curve has now been unwound and more, with the major benchmarks sitting little changed to 1.0bp richer. Holidays in China (which will last a week) and Hong Kong (which will return on Monday) thinned out liquidity during Asia-Pac trade, but the aforementioned gyrations in e-minis resulted in volume of ~140K for T-Notes. Final manufacturing PMI readings from across the globe will be observed on Friday, with the latest ISM m'fing survey and PCE data set to headline in U.S. hours. We will also get Fedspeak from Harker & Mester.

• JGB futures surged during the Tokyo morning, last +26 on the day. Participants played catch up to the late NY richening in the U.S. Tsy space & no changes to the BoJ's Q4 Rinban plan, published late on Thursday (there was speculation that the BoJ may cut its purchases out to 10s, with domestic participants likely reacting in early Tokyo trade, building on the overnight bid). The broader risk-off flows that we outlined earlier then provided a further source of support. 10s lead the rally in cash trade, firming by ~2.5bp. Elsewhere, it would seem that the shape of PM-in-waiting Kishida's cabinet is being leaked to the press.
• Aussie bonds followed the broader ebbs and flows. In terms of idiosyncratic matters, local data (headlined by a softer round of housing finance readings) has provided little impetus for the space, while speculation & subsequent news of advances when it comes to Australia's international reopening schedule may have allowed Aussie 10s to underperform their U.S. counterparts since yesterday's Sydney close. We saw another firm round of ACGB supply, this time in the form of an auction of A$1.0bn of ACGB Nov '31. The auction saw the cover ratio print comfortably above 5.00x, while the weighted average yield printed 0.75bp through prevailing mids at the time of supply (per Yieldbroker). The recent cheapening, coupled with the well-defined, supportive factors when it comes to ACGB demand (RBA purchase-adjusted negative net supply, record liquidity in the domestic banking system and international appeal) and reduced free float of the line driven by RBA ACGB purchases outweighed any worries re: the prospect for deeper cheapening and lack of hedging capability when it comes to futures.